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If there's a group of financial advisors who are bigger fans of exchange-traded funds than the 550-plus field meeting this week in southern California, John Ritter says he'd be very surprised.

The co-chair of this week's National Association of Personal Financial Advisors convention figures most of the attendees use passive strategies to manage client portfolios.

"I'd be shocked if less than 50% aren't using ETFs, DFA [Dimensional Fund Advisors] or Vanguard funds," said Ritter during a break Thursday at the NAPFA event in Long Beach, Calif. "The concentration of advisors using passive strategies here has to be higher than any other professional organization in the country."

Ritter, a Cincinnati-based advisor, says that's because NAPFA—unlike other trade groups—only allows fee-paid members. Those selling financial services on a commission basis must go elsewhere.

"We feel that operating on a fee-only basis eliminates most of the conflicts of interest that commission brokers face," Ritter added. "We like to ask a lot of questions about fees and expenses when dealing with mutual funds and ETFs. That demands a certain amount of objectivity."

Transparency Is King

Full disclosure is the key, says John Gugle, a Charlotte, N.C.-based advisor. "ETFs can be very misleading if you don't understand what you're buying," he said. "The people here are analysts as well as financial planners."

Working with clients on a fee-only basis forces advisors to keep up with ETFs and best practices for implementing those financial vehicles, added the Alpha Financial Advisors partner.

Part of the program on the conference's second day included a report on trends in the industry. Those showed that while older investors are most inclined to continue to use commission brokerages, younger people are increasingly turning to fee-based advisors.

"As a result, fee-only advisors have to be acutely aware of cutting-edge investments like ETFs," Gugle said. "And we're finding more people becoming concerned with expenses as investors become better-educated about their choices."

The three-day convention, which ends on Friday, marks NAPFA's 25^th anniversary. It's featuring discussions on everything from alternative investments to artificial intelligence. Some 145 exhibitors also showed up to hawk their funds and educational materials.

But while many of the advisors taking part say they mix some sort of active strategy with index funds and ETFs, most of those use some form of core-and-explore approach, says Jeffrey Daniher. He's also co-chairing the conference and is a partner in Ritter Daniher Financial Advisory.

Passive Funds As Core

"They may use active management to some extent on the edges," he said. "But most at least understand the value of passive funds serving as the core of building a diversified portfolio."

Still, the NAPFA group heard pitches about the value of shorting stocks and hedging tactics. One of those came from Robert Twitchell of JPMorgan's institutional advisor business. He talked about the advantages of so-called 130/30 hedge funds. Those short 30% of a portfolio's value and then take those funds to go long with the rest.

Twitchell described one process that uses a quantitative-based system that adjusts when computers discover changes in fundamental factors. Those include things like "headline shocks" when news threatens to move markets.

"This system is designed so that it can trade every five minutes," he said.

But one of the most popular sessions was presented by bond advisor Stan Richelson. Along with his wife, Hildy, he has authored five books on fixed-income investing.

In a closing presentation on Thursday, Richelson argued that investors shouldn't consider high-yield, emerging markets and foreign currencies as normal bonds.

"We believe junk bonds will have substantial defaults this year," Richelson said.

With emerging markets bonds, "When you convert these into dollars from foreign currencies, you get eaten up by transaction costs," he added.

If you want to take risk, Richelson says, "just buy equities."

He added: "The No. 1 myth leading professional advisors is that historical returns on stocks are around 10% over longer periods. But John Bogle tells us that hiring active management costs between 2% to 8% from soft money ... and other hidden expenses."

Richelson asserts that true returns for stocks over time when all costs are taken into account fall between 5% to 6%.

"It's uncertain that stocks will outperform bonds in the future," he said. "And it's not even clear that stocks outperformed bonds in the past."